Markets likely to be unfazed by politics

Will developments in the coming winter session of Parliament reverse the recent optimism in the stock market? That’s the question some nervous traders are posing in the run-up to the month-long session, beginning Thursday.

With the Trinamool Congress expected to go all out to try and topple the government and the other Opposition parties pushing to reverse the recent decision to open the multi-brand retail sector to foreign giants, Parliament is gearing up for another tumultuous session.

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However, the market might not react severely to these events over the next month, said some analysts. “The impact of political risks on the market over the next month or so is a bit exaggerated," said Suresh Mahadeven, managing director-head of India equities at investment bank UBS. “It looks like the government is on a stable footing as of now."

Analysts said investors are convinced Tamil Nadu’s DMK and the Uttar Pradesh-based parties, SP and BSP, will most likely support the UPA government. “The market does not seem to be deeming that there are major political risks in the weeks ahead because the government appears confident of its numbers," said U R Bhat, managing director, Dalton India.

Investors’ confidence in the government mustering the needed numbers in this session is a strong contrast to the situation in the monsoon session, when the markets had turned nervous in the absence of any parliamentary work. A lot has changed since, with the government moving aggressively by pushing through rules allowing higher foreign direct investment in retailing and aviation, sparking fresh foreign institutional inflows worth Rs 30,000 crore. So far in 2012, foreign investors have poured close to Rs 99,000 crore into stocks.

“Unlike the previous session, investors have a lot more confidence in the government this time because of its (government’s) aggressive posturing in recent months," said Bhat. “In fact, the market will cheer if the government is able to push through a lot of measures despite the opposition and noise."

Analysts said if the government is able to introduce more market-friendly steps such as the Goods and Services Tax legislation, setting up the National Investment Board and reducing the fiscal deficit, stocks would be able to attract a bigger pie of the global liquidity rush.

But the road ahead is unlikely to be smooth in terms of policy decisions, as analysts note the government is in a minority.

“Parties like the SP and BSP that currently provide the (ruling) UPA with external support have not yet shown clear support for some of the proposed measures," said Rohini Malkani, economist, Citi. “We maintain our view that as the UPA government is currently in a minority, there will be parliamentary uncertainty and challenges," she said in a client note.